Tag: New York Times

Obama Ringing the Pell

As part of his ill-considered credentialing-to-compete initiative, President Obama wants to greatly increase both the size and availablity of Pell Grants. Under his proposed FY 2011 budget, the total pot of Pell aid would rise from $28.2 billion in 2009 to $34.8 billion in 2011; the maximum award would go from $5,350 to $5,710; and the number of students served would rise by around 1 million.  

A critical question, of course, is whether increasing Pell will ultimately make college more affordable or self-defeatingly fuel further tuition inflation. The New York Times took that up in yesterday’s Room for Debate blog.

Economist Richard Vedder has long educated people about the inflationary effect of student aid, and does so again with great clarity. It’s higher-ed analyst Art Hauptman, however, whom I think best captures what likely occurs when Pell is combined with all the cheap loans and other aid furnished by Washington, states, and schools themselves:

The degree to which student aid affects what colleges and universities charge varies between the Pell Grant and student loans. The Pell Grant has not had much effect on tuition levels in part because the amount of the awards does not vary with where a student enrolls. Institutions cannot affect how much a student receives, and the institutions that charge the most enroll the fewest Pell Grant recipients.

By contrast…there are several good reasons to believe that student loans have been a factor in the rising cost of a college education. Tuition has increased by twice the inflation rate for the past three decades while annual loan volume has increased tenfold in constant dollars.

Unlike Pell Grants…colleges have some control over how much students borrow as loan amounts. Moreover, just as one couldn’t imagine house prices being as high as they now are if mortgage financing were not available, it is difficult to believe that colleges and universities could have increased their charges so rapidly over time without the ready availability of students’ ability to borrow.

[W]e should worry…that increases in Pell Grants may lead institutions to reduce the amount of discounts they would otherwise have provided to the recipients, who are from poor families, and move the aid these students would have received to others. This possibility…is supported by the data showing that public and private institutions are now more likely to provide more aid to more middle-income students than low-income students.

So what’s likely going on? Cheap federal loans – which are available to students of all income levels and vary according to a college’s price – are probably the main direct tuition inflator. More indirectly, Pell probably encourages schools to move other aid from poorer to wealthier students, enabling the latter to pay ever-higher “sticker” prices. In other words, student aid powers tuition inflation!

Which brings me to a quick comment about the submission from College Board economist Sandy Baum, who trots out the standard “declining state appropriations”  to explain our college-price pain.

How many more times do I need to disprove this? Apparently, at least once more:

(Source: State Higher Education Executive Officers)

Public funding is a roller coaster and tuition revenue an incline. Over the last quarter century, per-pupil state and local funding for public colleges and universities went up and down, but dropped overall by a mere $8 per year. In contrast, public colleges’ per-pupil revenue from tuition (net of state and local student aid) rose more or less unabated, growing by about $73 per year. 

This – as well as the fact that private colleges are also guilty of huge price inflation – clearly belies the notion that colleges raise prices because skinflinty governments make them. That might be part of the explanation, but an even bigger part is almost certainly that colleges raise prices because, thanks to ever-growing student aid, they can.

Obama Commands the Impossible

Today’s New York Times reports that President Obama has “ordered the rapid development of technology to capture carbon dioxide emissions from the burning of coal,” as well as mandating the production of more corn-based ethanol and financing farmers to produce “cellulosic” ethanol from waste fiber.

You’ve got to like the president’s moxie.  Faced with his inability to pass health care reform and cap-and-trade, he now chooses to command the impossible and the inefficient.

Most power plants are simply not designed for carbon capture.  There isn’t any infrastructure to transport large amounts of carbon dioxide, and no one has agreed on where to put all of it.  Corn-based ethanol produces more carbon dioxide in its life cycle than it eliminates, and cellulosic ethanol has been “just around the corner” since I’ve been just around the corner.

However, doing what doesn’t make any economic sense makes a lot of political sense in Washington, because inefficient technologies require subsidies–in this case to farmers, ethanol processors, utilities, engineering and construction conglomerates, and a whole host of others.  Has the president forgotten that his unpopular predecessor started the ethanol boondogle (his response to global warming) and drove up the price of corn to the point of worldwide food riots? Hasn’t he read that cellulosic ethanol is outrageously expensive? Has he ever heard of the “not-in-my-backyard” phenomenon when it comes to storing something people don’t especially like?

Yeah, he probably has.  But the political gains certainly are worth the economic costs.  Think about it.  In the case of carbon capture, it’s so wildly inefficient that it can easily double the amount of fuel necessary to produce carbon-based energy.  What’s not to like if you’re a coal company, now required to load twice as many hopper cars?  What’s not to like if you’re a utility, guaranteed a profit and an incentive to build a snazzy, expensive new plant?  And what’s not to like if you’re a farmer, gaining yet another subsidy?

Is the Threat of Cyberattack Growing?

The New York Times dutifully reports that the Director of National Intelligence says it is. But it’s hard to know what that means. The word “cyberattack” has no usefully fixed definition.

And the important questions—plural—include: 1) whether cyberattacks—plural—are growing in number and sophistication more quickly than the capability of infrastructure owners to fend them off and recover from them; 2) which, if any, owners lack incentives to secure their infrastructure and what security externalities they might create; and 3) what levers—such as contract liability, tort liability, or regulation—might correct any such market failures.

Some lines in Director Blair’s statement are quite telling. Compare this:

Terrorist groups and their sympathizers have expressed interest in using cyber means to target the United States and its citizens.

to this:

The cyber criminal sector in particular has displayed remarkable technical innovation with an agility presently exceeding the response capability of network defenders.

Now, which class of actors are you going to worry about—the ones that dream of doing something bad? Or the ones that have the sophistication to do something bad? Probably the latter.

While calling for a federal intelligence-community role in “cybersecurity,” Blair confesses that this is more of a crime problem that the business sector needs to handle than a true national security issue in which the leading role would be played by government.

The good news is that crime syndicates don’t prosper by killing their hosts. Don’t look for catastrophic failure of our technical infrastructures arising from this most serious of “cyber” threats.

There’s no question that cybersecurity is important. But it’s also manageable. I shared my thoughts on “cybersecurity” last year with the House Science Committee.

Giving Away the Keys to the Kingdom?

The New York Times editorial board must be baffled by this news story about a few dozen present and former corporate executives appealing to Congress to expand public funding of political campaigns.

The appeal comes one day after the Supreme Court re-extended (some) First Amendment rights to corporations in a move the editorial board branded a “blow to democracy” that will lead to corporations “overwhelm[ing] elections and intimidat[ing] elected officials.” But now some corporate executives want to be dispossessed of the keys to the kingdom immediately after SCOTUS returned them — say what?

The executives’ appeal makes sense if you’ve read this article by law professor Robert Sitkoff (then of Northwestern, now the John L. Gray Professor of Law at Harvard ). Sitkoff argues that the 1907 Tillman Act, which placed the first federal limits on corporate involvement in campaigns, was not adopted because elected officials wanted protection from corporations, but because corporations demanded protection from donation-seeking politicians like William McKinley and his bagman Mark Hanna. Now, in the wake of the Citizens United decision, corporations are asking for renewed protection — this time on the taxpayers’ dime.

As others have argued, corporations are subject to federal laws, regulations and taxation, just like citizens, and therefore should have First Amendment rights just like citizens. If corporations are afraid their regained rights will expose them to politicians’ demands for corporation-financed political ads, then corporate officers should follow their duty to shareholders and learn how to say no.

As for the New York Times Company’s concern about corporations having undue influence on democracy, there are a couple of things it can do to reduce that influence. For one, the New York Times Company can stop endorsing candidates for office — a practice that undermines newspapers’ claims of fair and objective reporting. For another, the New York Times Company can stop using its reporters to electioneer.

Reading Reality

Today, Politico Arena asks:

“Do they get it?”

My response:

Do the Democrats get it?  A good many of them, like so much of the mainstream media, have long taken their cue from The New York Times editorial page. This morning the Great Gray Lady sallies forth, ideological blinders in place, to pronounce that,  “To our minds, [Tuesday’s result] is not remotely a verdict on Mr. Obama’s presidency, nor does it amount to a national referendum on health care reform.”  Not remotely?  Those Democratic office-holders who continue to sip from that purblind well will soon have plenty of time to do so.

But Republican performance in recent years has hardly inspired.  To their credit, however, Republicans tend to subscribe to principles about government that are closer to the nation’s founding principles – if only they would abide by them.  And so one hopes that, after Tuesday, they will come better to “get it.”

Tuesday Links

  • Gene Healy on today’s election in Massachusetts: “If Republican Scott Brown wins the Massachusetts special election Tuesday, the Bay State will have its first GOP senator since the era when disco was king. And Brown will have the much-derided Tea Party legions to thank.”
  • George W. Obama? “Bush’s successor—who actually taught constitutional law at the University of Chicago—is continuing much of the Bush-Cheney parallel government and, in some cases, is going much further in disregarding our laws and the international treaties we’ve signed.”
  • Podcast: “Our America Initiative” featuring former New Mexico Governor Gary Johnson. Johnson discusses out of control government spending, immigration, the Bush years, the drug war, defense policy and more.

HHS Bureaucracy Is Not up to the Task

One aspect of the health care debate that has not been sufficiently addressed is how the Department of Health and Human Services will handle all its new responsibilities given the massive fraud and abuse that already plagues its existing programs.

It seems that every week there’s a new report of government health care being bilked. Since what’s reported is typically only what is caught, one can only imagine how much isn’t being caught. Harvard’s Malcolm Sparrow, a top specialist in health care fraud, estimates that up to 20 percent of federal health program budgets are consumed by improper payments, which would be a staggering $150 billion a year for Medicare and Medicaid.

New York Times columnist David Leonhardt did raise the question this week of whether the HHS bureaucracy is up to the task. He notes that the president is yet to choose a nominee to head the HHS’s Centers for Medicare and Medicaid Services (CMS), and he suggests that “the lack of a Medicare nomination suggests that the White House is not giving enough attention to what will happen once Mr. Obama signs a bill.” Well that’s because most politicians are primarily concerned with getting accolades for passing bills, but don’t worry too much about how programs actually work.

As I mentioned in an earlier post on this subject, CMS is the reincarnation of a previous HHS bureaucracy with a poor reputation. David Hyman recounts in his book, Medicare Meets Mephistopheles, that in 2001 HHS’s Health Care Financing Administration became CMS in an attempt to rebrand the universally disliked HCFA. CMS Administrator Tom Scully told Congress in 2003:

The fact is, the health care market…is extremely muted and extremely screwed up and it’s largely because of my agency. For those of you who don’t follow CMS, which used to be called HCFA, we changed the name because it was so well loved. I always say it’s kind of like when Enron comes out of bankruptcy, they’ll probably change their name. So, HCFA—Secretary Thompson and I decided to confuse everybody. We changed the name to CMS for a couple of years so people wouldn’t realize we’re actually HCFA. So far, it’s worked reasonably well.

Oh sure, the president is promising that this time it will be different. But Leonhardt relates a story from former CMS administrator Mark McClellan that shows why the president’s promise will be impossible to keep:

[Mark McClellan] likes to tell the story of a Medicare demonstration project that Congress approved in 2003. Once the bill passed, officials had to devise the project’s details, decide how to measure the results and choose the locations. All of that took until 2009. The first round of projects — coordinating care across medical specialties, in Indiana and North Carolina — has only recently started. Years more will pass before the results are in.

Sadly, McClellan’s solution is “adding in a few billion dollars to give Medicare the resources to act more quickly.” In other words, more bureaucracy.

Leonhardt concludes by comparing the HHS bureaucracy to “old-line” private companies:

The agencies that will be managing health reform are often the same ones that have helped build the current system. Many talented people work in these agencies, and unlike the Medicare administrator, they are already in place. But there are all sorts of reasons to be skeptical of how easily a sprawling, existing organization can innovate.

People at old-line organizations tend to rationalize the usual ways of doing business and to worry about the downsides of change. I.B.M. didn’t invent Windows or the Mac. Newspapers didn’t invent Craigslist. Medicare and Medicaid will, to a significant degree, have to reinvent government-provided medical care and, in the process, help create a template for private insurers.

Although I’m sympathetic to this comparison, I’m not completely buying it. Market forces demand that private companies innovate to satisfy customers; otherwise they’re apt to disappear, assuming they don’t get government bailouts. Government bureaucracies face no such forces. As I mentioned, HHS’s previous bungling Medicare/Medicaid bureaucracy simply changed its name and kept right on losing taxpayer money.

Also, in a new CNN.com article, the chief of the FBI’s Health Care Fraud Unit, Rob Montemorra, explains why big government administered healthcare programs are more susceptible to fraud than their private sector counterparts:

One key reason having Medicare information is a virtual “gold mine” for fraudsters, according to Montemorra, is the system’s “pay and chase” system – under the law, Medicare must send out payments within a very short time period.

He said private insurers are better at preventing fraud – although not immune from it – because they’re so much smaller.

Montemorra said the process heightens the potential for fraud and other forms of abuse because the government is more often reacting to cases of abuse instead of preventing them before they happen.

For more on fraud and abuse in government programs, see this Cato essay.